Online money transfers: honesty is the best policy, but are you getting a fair deal?
Helen Scott is the CEO of Eris FX. Here she discusses the evolution of the personal and business FX transfer market, and covers the pressures that will see the industry change drastically over the coming months.
Online money transfers: honesty is the best policy, but are you getting a fair deal?
Plenty of consumers will be all too familiar with the historically laborious and costly task of sending money abroad.
The outbound UK retail FX transfer market is worth around £60 billion a year, according to a survey carried out by FXCintel on behalf of the Financial Conduct Authority (FCA) in 2018.
Where traditionally, high street banks and traditional providers were the primary way consumers transferred money internationally, recently, online exchange providers have gained significant traction among consumers, by leveraging lower infrastructure costs and new technologies.
The shift to online platforms should in theory have increased transparency for consumers. However, with many providers overcharging customers through hidden charges, inflated exchange rates and even using personal customers to subsidise their business custom, that’s simply not the case. What’s worse, it’s likely thousands of customers are losing money on their transfers without even realising.
The Advertising Standards Authority (ASA) and the FCA have been aware of companies potentially misleading customers with false advertising or incorrect rates. This has led to a handful of well-known firms having complaints upheld against them.
In 2015 the ASA ruled that the widespread use of website “currency converters” by online FX providers, including many of the largest ones, was potentially misleading. This was because the interbank rate they returned could not be achieved. The FCA agreed, it stepped in and by 2018 they were all but gone.
However, instead of replacing the potentially misleading prices with meaningful information, many firms have chosen not to give any upfront pricing at all. They often advertise their services as having ‘no fees’ or even as ‘free international currency transfers’, but potential customers are not told the actual cost of the transaction until after they have provided contact information or, in some cases, registered. This makes it very difficult for potential customers to shop around and compare providers.
For a while, neither authority had enough power to put a halt to the malpractice all together. Until 2018, when the FCA was granted new powers by HM Treasury to try to tackle the issue at industry level rather than firm by firm, as it had previously done. It has now produced a recommendation paper, 19/3: General standards and communication rules for the payment services and e-money sectors.
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The mission of these new rules, that are due to come in on the 1st August, is to ensure good price disclosure and more competition based on price. Its rules and guidance are designed to require providers to ensure that their communications are accurate, balanced and do not disguise, diminish or obscure important information.
A company that goes by the same name as the Greek goddess of disruption, Eris FX, has made it its mission to champion transparency and bring about change to the industry, empowering consumers with information to allow them to make an informed decision.
International payments specialists Eris FX is already leading the way; by displaying live rates online that update by the second, customers considering a money transfer with Eris FX can clearly see the rate they’re getting compared to the interbank rate, their margin and the total amount they would get in their desired currency.
Eris prides itself in offering its customers a transparent money transfer solution and are welcoming the new rules that are looking to transform the industry with an injection of transparency, to ensure that each and every consumer gets a fair deal up front.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.